China’s direct investment overseas is expected to reach $367.3 billion by 2022. That will surpass the United States, making China the world’s largest source for foreign direct investment, according to a report by a top think tank.
According to the 2015 Report on Chinese Enterprise Globalization published by the Beijing-based Center for China and Globalization (CCG), outbound direct investment by Chinese companies is expected to grow rapidly, thanks to strong government support and the country’s fast-growing private sector.
The report said that Chinese outbound investors are extremely conscious about macro, political and economic risks. The top three concerns are political security, policy stability, legal and institutional environment. Cultural disparities continued to be the biggest obstacle in foreign markets.
To cope with these risks, Chinese companies are focusing on maintaining better relations with local labor unions, media, authorities and nonprofit environmental protection organizations.
“As the United States and Europe are the most attractive overseas markets for Chinese investors, they are capable of investing more in the two markets once the China-US and China-EU bilateral investment treaties are completed,” said Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics in Beijing.
One example mentioned by the report is Tsinghua Unigroup Ltd’s $23 billion takeover bid for the US chipmaker Micron Technology Inc. If the deal goes through, it would be the largest Chinese acquisition in the US till date.
China became a net capital exporter for the first time in 2014 when ODI outgrew FDI. Outbound investment grew 14.1 percent to $123.12 billion, eclipsing the 1.7 percent FDI growth.
Chinese investments in the European market are also expected to rise this year, marking a new era for China-Europe cooperation through an unprecedented strategic partnership between the Silk Road Fund and the European Fund to jointly invest in Europe.
However, the report said that Chinese companies are also facing risks in developed countries due to high labor costs.
Ma Yu, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing, said as a major outbound investor, China urgently needs to readjust its stance when forging international bilateral or multilateral investment treaties. This would help protect the interests of domestic investors in foreign markets.
“China should further enhance the function of ‘negative list’ to raise the protection standards for international investment, as well as introduce corporate social responsibility into these deals to protect public interest and the environment,” said Ma.
A “negative list” specifies any bans or limits on foreign investment. Businesses not on such a list are presumed to be unrestricted. This system had been adopted in China’s four pilot free trade zones in Shanghai, Tianjin, Guangdong and Fujian, which opened in the past two years.
Wang Huiyao, CCG’s president, said China has invested considerable effort in deepening cooperation with countries along the Belt and Road Initiative regions this year, and the investment will be stronger than expected from a long-term perspective.
The initiative, proposed by China in 2013, refers to the Silk Road Economic Belt and the 21st Century Maritime Silk Road, which cover Asia, Africa and Europe.